1 00:00:13,760 --> 00:00:17,439 Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast. 2 00:00:17,560 --> 00:00:20,360 Speaker 1: My name is Mike Reagan, I'm a senior editor at Bloomberg, 3 00:00:21,040 --> 00:00:24,160 Speaker 1: and I'm vil Donna hick Cross ASID report at Bloomberg. 4 00:00:24,720 --> 00:00:27,080 Speaker 1: And this week on the show, Well, the good news 5 00:00:27,160 --> 00:00:30,280 Speaker 1: is the SMP five hundred is trading near record highs again. 6 00:00:30,680 --> 00:00:33,760 Speaker 1: But the bad news, well, there's some clouds gathering on 7 00:00:33,800 --> 00:00:37,000 Speaker 1: the horizon. US economic growth came in lower than expected 8 00:00:37,040 --> 00:00:40,080 Speaker 1: at two percent for the third quarter, and the inflation 9 00:00:40,159 --> 00:00:43,600 Speaker 1: fueling supply chain bottlenecks don't seem to be easing any 10 00:00:43,720 --> 00:00:47,720 Speaker 1: time soon. Meanwhile, the Federal Reserve appears poised to finally 11 00:00:47,760 --> 00:00:52,040 Speaker 1: announce plants to taper its asset purchases next week. So 12 00:00:52,080 --> 00:00:54,920 Speaker 1: it's this rally on borrow time. We'll get into it 13 00:00:55,000 --> 00:00:58,400 Speaker 1: with a veteran fund manager. But well, donta first, I 14 00:00:58,440 --> 00:01:00,440 Speaker 1: need to issue I don't know if you would call 15 00:01:00,480 --> 00:01:05,600 Speaker 1: it a correction or retraction to last week's podcast. Remember 16 00:01:05,640 --> 00:01:08,520 Speaker 1: we were talking about how our friend Sarah has cooled 17 00:01:08,600 --> 00:01:12,399 Speaker 1: seats in her car down in Florida. Yeah, of course, 18 00:01:12,440 --> 00:01:16,240 Speaker 1: I remember. It's like the coolest thing I've never heard of. 19 00:01:16,280 --> 00:01:18,080 Speaker 1: Such a thing I thought, is the coolest thing in 20 00:01:18,080 --> 00:01:20,759 Speaker 1: the world. Anyway. I'm at my kids field hockey game 21 00:01:20,800 --> 00:01:23,240 Speaker 1: the other night and a friend who's an avid listener 22 00:01:23,240 --> 00:01:26,800 Speaker 1: of the show, shout out to John Midler comes up 23 00:01:26,840 --> 00:01:28,880 Speaker 1: and he says, I can't believe you've never heard of 24 00:01:29,000 --> 00:01:31,640 Speaker 1: cold seats. I've got to pick up truck that's eleven 25 00:01:31,680 --> 00:01:33,760 Speaker 1: years old. It's got cold seats in them. And I'm like, 26 00:01:33,840 --> 00:01:38,000 Speaker 1: what right, And then it gets worse, and then my 27 00:01:38,040 --> 00:01:42,280 Speaker 1: wife goes, you, dummy, Our cheap Cherokee has cooled seats 28 00:01:42,280 --> 00:01:46,840 Speaker 1: in them. I had no idea. What apologies to listeners, 29 00:01:46,840 --> 00:01:50,160 Speaker 1: just the first ever retraction. Can I say that that 30 00:01:50,240 --> 00:01:55,640 Speaker 1: makes you supremely fancy? As fancy as Sarah. That's pretty fancy. Yeah, 31 00:01:56,360 --> 00:01:59,240 Speaker 1: I'm not quite as fancy as Sarah. You took a 32 00:01:59,240 --> 00:02:02,400 Speaker 1: big step towards it. Well. I know that our guest 33 00:02:02,440 --> 00:02:04,560 Speaker 1: comes from a really cold area of the country, so 34 00:02:04,600 --> 00:02:07,160 Speaker 1: I don't know if he has cool cooling seats. We'll 35 00:02:07,200 --> 00:02:09,400 Speaker 1: find out. But I want to bring in Doug Ramsey. 36 00:02:09,480 --> 00:02:12,720 Speaker 1: He's the chief investment officer and co manager of the 37 00:02:12,960 --> 00:02:17,640 Speaker 1: looth Oled Core Fund. Doug, Welcome to the show. Thanks 38 00:02:17,680 --> 00:02:19,640 Speaker 1: so much, it's great to be on you know as 39 00:02:19,680 --> 00:02:24,720 Speaker 1: a longtime fund manager, and is especially in our space, 40 00:02:24,840 --> 00:02:28,080 Speaker 1: which is tactical asset management. It's been a hot seat 41 00:02:28,160 --> 00:02:30,840 Speaker 1: here for a while, and I don't know when it 42 00:02:30,919 --> 00:02:33,760 Speaker 1: was ever cool. That's a that's a really good transition, 43 00:02:34,440 --> 00:02:36,600 Speaker 1: you know. We we tend to do well during more 44 00:02:36,639 --> 00:02:40,280 Speaker 1: difficult markets. Uh, so it was a cool seat for 45 00:02:40,320 --> 00:02:45,000 Speaker 1: about twenty five days in March of but then back 46 00:02:45,040 --> 00:02:49,040 Speaker 1: off to the races and uh, yeah, the seat feels 47 00:02:49,040 --> 00:02:53,280 Speaker 1: pretty hot from the perspective of I guess those who 48 00:02:53,760 --> 00:02:58,760 Speaker 1: who own US equities. But we're faring pretty well within 49 00:02:58,800 --> 00:03:01,760 Speaker 1: our tactical peer group, which is I mean that pier 50 00:03:01,840 --> 00:03:05,520 Speaker 1: group has been under pressure, as you might imagine, for 51 00:03:05,560 --> 00:03:09,080 Speaker 1: a long period here with you know what, what you 52 00:03:09,120 --> 00:03:12,760 Speaker 1: could almost argue is now a twelve and a half 53 00:03:12,840 --> 00:03:16,239 Speaker 1: year bull market rather than a one and a half 54 00:03:16,320 --> 00:03:19,320 Speaker 1: year bull market, depending on how you score things at home, 55 00:03:20,720 --> 00:03:23,080 Speaker 1: you know, talk as you put out, talk about a 56 00:03:23,080 --> 00:03:26,160 Speaker 1: hot stock market again. Uh, we're talking before the show, 57 00:03:26,320 --> 00:03:30,760 Speaker 1: and you use the word that I think always raises eyebrows, Uh, 58 00:03:31,120 --> 00:03:33,240 Speaker 1: melt up. You think we're we're kind of been a 59 00:03:33,280 --> 00:03:36,680 Speaker 1: melt up right now. Um, And obviously that makes you 60 00:03:36,800 --> 00:03:39,960 Speaker 1: wonder if a meltdown is in the cards too. But 61 00:03:39,960 --> 00:03:42,560 Speaker 1: but explain how why you're thinking that and sort of 62 00:03:42,560 --> 00:03:46,120 Speaker 1: what what are the what's the evidence of a melt 63 00:03:46,120 --> 00:03:48,720 Speaker 1: top in most cases, and why do you think we're 64 00:03:48,760 --> 00:03:52,320 Speaker 1: having one now? Well, it's just got that feel to it. 65 00:03:52,320 --> 00:03:54,960 Speaker 1: It's sort of the the time of the year here 66 00:03:54,960 --> 00:04:01,760 Speaker 1: where seasonality turns positive. Uh. And you know, despite this, uh, 67 00:04:01,840 --> 00:04:06,480 Speaker 1: this resurrection of the Nasdaq stocks, I mean, this thing 68 00:04:06,760 --> 00:04:09,680 Speaker 1: is is still very broad. I mean, we wrote, you know, 69 00:04:09,760 --> 00:04:13,360 Speaker 1: throughout the summer and early fall about just some you know, 70 00:04:13,400 --> 00:04:15,960 Speaker 1: anomalies that we were seeing in terms of the market 71 00:04:16,000 --> 00:04:18,880 Speaker 1: breadth data. You know, we're still seeing some of those. 72 00:04:19,279 --> 00:04:22,280 Speaker 1: But it's really hard to argue that the market has 73 00:04:22,400 --> 00:04:27,280 Speaker 1: narrowed when you've got New York Stock Exchange breadth at 74 00:04:27,279 --> 00:04:31,320 Speaker 1: a new all time high as recently as Tuesday October, 75 00:04:33,040 --> 00:04:37,160 Speaker 1: when you had the value line arithmetic composite, which is 76 00:04:37,320 --> 00:04:40,520 Speaker 1: an equal weighted index of about stocks that made an 77 00:04:40,520 --> 00:04:43,640 Speaker 1: all time high on the same day after having been 78 00:04:43,800 --> 00:04:47,880 Speaker 1: rangebound for a lot of months. So it is very broad. 79 00:04:48,000 --> 00:04:51,039 Speaker 1: And then it's just its ability to just shrug off 80 00:04:51,640 --> 00:04:57,599 Speaker 1: this looming tapering, which we would construe as tightening. As 81 00:04:57,600 --> 00:05:03,880 Speaker 1: we did in h and then uh, you know, the 82 00:05:04,080 --> 00:05:07,720 Speaker 1: likelihood that we're going to see elevated inflation numbers well 83 00:05:07,760 --> 00:05:14,080 Speaker 1: into two. I mean we've moved from the transitory narrative. 84 00:05:15,000 --> 00:05:20,279 Speaker 1: You know, the definition of transitory has been warped. Uh. 85 00:05:20,279 --> 00:05:22,920 Speaker 1: And and now we're almost beyond that to where it's 86 00:05:22,960 --> 00:05:27,280 Speaker 1: accepted that we're going to have elevated inflation for a while. 87 00:05:27,640 --> 00:05:31,200 Speaker 1: And now, um, and remember a lot of times the 88 00:05:31,240 --> 00:05:35,240 Speaker 1: market narrative morphs to fit the price action. Well, now, 89 00:05:35,279 --> 00:05:38,800 Speaker 1: because the market has been so strong coming off of 90 00:05:38,880 --> 00:05:43,160 Speaker 1: early October lows, the new narrative is well yet inflation 91 00:05:43,240 --> 00:05:47,080 Speaker 1: is going to be elevated, but it's gonna lift earnings 92 00:05:47,600 --> 00:05:52,599 Speaker 1: and will not impact PE multiples. So it's been interesting 93 00:05:52,640 --> 00:05:55,560 Speaker 1: to watch that narrative on inflation evolved over the last 94 00:05:55,560 --> 00:05:58,520 Speaker 1: six or seven months. So do if we can take 95 00:05:58,560 --> 00:06:02,159 Speaker 1: a really big step back. I noticed in a recent 96 00:06:02,200 --> 00:06:04,760 Speaker 1: note of yours you had said, Um, there's plenty of 97 00:06:04,760 --> 00:06:08,120 Speaker 1: fundamental misgivings about this market, but the shorter term work 98 00:06:08,200 --> 00:06:12,559 Speaker 1: still cautions against hedging two aggressively. And so I'm wondering 99 00:06:12,640 --> 00:06:14,279 Speaker 1: what you mean by that, and if that's a really 100 00:06:14,279 --> 00:06:18,040 Speaker 1: good way to characterize what's going on right now, meaning 101 00:06:18,080 --> 00:06:24,039 Speaker 1: people are worried, but that they're staying invested. Well. Part 102 00:06:24,080 --> 00:06:29,919 Speaker 1: of our concern in the shorter term, I mean in 103 00:06:30,040 --> 00:06:35,680 Speaker 1: terms of, you know, trying to to hedge against this market. 104 00:06:35,680 --> 00:06:38,760 Speaker 1: As you know, as I mentioned earlier, this this move 105 00:06:38,920 --> 00:06:43,320 Speaker 1: is very broad. Again, You've got so many bellweathers breaking 106 00:06:43,320 --> 00:06:48,039 Speaker 1: out two new highs. The Dow Transports, which were lagging 107 00:06:48,160 --> 00:06:51,000 Speaker 1: for much of the year, are on the verge of 108 00:06:51,040 --> 00:06:53,560 Speaker 1: breaking out to a new all time high. I mentioned 109 00:06:53,600 --> 00:06:58,440 Speaker 1: this measure of stocks equal weighted at a new high, 110 00:06:58,480 --> 00:07:01,080 Speaker 1: New York Stock Exchange breath at a new high. It's 111 00:07:01,080 --> 00:07:03,279 Speaker 1: just it would be very rare for the market to 112 00:07:03,279 --> 00:07:06,960 Speaker 1: put in a major top. I mean, regardless of how 113 00:07:07,000 --> 00:07:11,520 Speaker 1: expensive it might be, and regardless of how the FED 114 00:07:11,600 --> 00:07:16,040 Speaker 1: may be moving into the less accombinative mode. Just history 115 00:07:16,080 --> 00:07:19,480 Speaker 1: shows that generally there is some sort of narrowing that 116 00:07:19,600 --> 00:07:24,160 Speaker 1: happens before you reach a definitive top in the market. 117 00:07:24,200 --> 00:07:28,600 Speaker 1: And that's why while we're we're cautious in terms certainly 118 00:07:28,600 --> 00:07:31,080 Speaker 1: in terms of evaluations and what the FED is likely 119 00:07:31,160 --> 00:07:34,720 Speaker 1: to do now here over the next several months, the 120 00:07:34,800 --> 00:07:38,080 Speaker 1: market probably deserves the benefit of the doubt because of 121 00:07:38,360 --> 00:07:42,840 Speaker 1: its very strong internal momentum. You know, Doug, I want 122 00:07:42,880 --> 00:07:47,120 Speaker 1: to get unpack a little bit. Uh, that notion of 123 00:07:47,680 --> 00:07:52,040 Speaker 1: inflation and valuations. You know, as you put out historically, 124 00:07:52,080 --> 00:07:58,200 Speaker 1: you always think of higher inflation really depressing stock stock 125 00:07:58,240 --> 00:08:01,720 Speaker 1: market multiples. UM. I always think back of that rule 126 00:08:01,720 --> 00:08:03,600 Speaker 1: of twenty I think it was Peter Lynch who who 127 00:08:03,600 --> 00:08:06,320 Speaker 1: came up with that, where you know, the market wide 128 00:08:06,320 --> 00:08:09,120 Speaker 1: p plus the rate of inflation should equal about twenty 129 00:08:09,160 --> 00:08:12,400 Speaker 1: two to be a fairly valued market. Well, well here 130 00:08:12,440 --> 00:08:15,360 Speaker 1: we've got peas way about twenty on a forward and 131 00:08:15,480 --> 00:08:20,960 Speaker 1: trailing basis, inflation like we've never seen before. Um. Is 132 00:08:20,960 --> 00:08:24,560 Speaker 1: it inevitable to to sort of see that valuation uh 133 00:08:25,200 --> 00:08:28,000 Speaker 1: come back down? Or is this is there a case 134 00:08:28,040 --> 00:08:29,680 Speaker 1: to be made at this time? Is different? You know, 135 00:08:29,720 --> 00:08:32,560 Speaker 1: the regular listeners of the show will sort of think 136 00:08:32,559 --> 00:08:34,560 Speaker 1: I'm a broken record on this. But I keep thinking 137 00:08:34,559 --> 00:08:37,439 Speaker 1: of of all the cash that's just sitting around. How 138 00:08:37,480 --> 00:08:42,240 Speaker 1: the savings, the consumer savings rate blew out during the pandemic. Uh, 139 00:08:42,480 --> 00:08:47,320 Speaker 1: corporations cash levels are really high. UH, money market funds 140 00:08:47,320 --> 00:08:50,880 Speaker 1: are are really high. Back balance sheets are really high. 141 00:08:51,120 --> 00:08:53,360 Speaker 1: Is there just enough kind of dry powder on the 142 00:08:53,440 --> 00:08:57,560 Speaker 1: side sidelines to to sort of break that historical relationship 143 00:08:57,800 --> 00:09:01,920 Speaker 1: between inflation in multi suppolser is that something you wouldn't 144 00:09:01,960 --> 00:09:05,000 Speaker 1: mess with? Uh So I think about it more in 145 00:09:05,000 --> 00:09:08,480 Speaker 1: just terms of this this excess liquidity, I mean, keeping 146 00:09:08,520 --> 00:09:13,000 Speaker 1: them the money supply growth rate, and let's set QE 147 00:09:13,040 --> 00:09:16,640 Speaker 1: aside right for the moment. But you know, we are 148 00:09:16,679 --> 00:09:22,959 Speaker 1: still growing mto money supply in this country at I mean, 149 00:09:23,000 --> 00:09:25,839 Speaker 1: now that's down from a peak. I think we peaked 150 00:09:26,280 --> 00:09:32,199 Speaker 1: post collapse at earlier this year. It's fallen in half, 151 00:09:32,200 --> 00:09:36,880 Speaker 1: but it's stayed around that level for the last three 152 00:09:36,920 --> 00:09:40,080 Speaker 1: or four months. I have no idea why the money 153 00:09:40,120 --> 00:09:44,000 Speaker 1: supply still needs to be growing that rapidly, with with 154 00:09:44,679 --> 00:09:49,680 Speaker 1: fiscal outlays growing much more slowly than they were during 155 00:09:49,720 --> 00:09:53,400 Speaker 1: the height of the emergency assistance. But but there we are. 156 00:09:53,559 --> 00:09:57,439 Speaker 1: And so part of me looks at this looming tapering 157 00:09:57,800 --> 00:10:01,960 Speaker 1: and says, well, that's that's it. An incremental that's a 158 00:10:02,040 --> 00:10:06,040 Speaker 1: that's an important change at the margin, you know, taking 159 00:10:07,600 --> 00:10:11,160 Speaker 1: Huey purchases from a hundred and twenty billion dollars a 160 00:10:11,240 --> 00:10:15,760 Speaker 1: month down to zero next summer, which is what's sort 161 00:10:15,800 --> 00:10:19,720 Speaker 1: of being a trial balloons out there among the various 162 00:10:19,800 --> 00:10:24,160 Speaker 1: FED talking heads. I mean, I'll believe that when I 163 00:10:24,160 --> 00:10:27,640 Speaker 1: see it, quite frankly. But we're still growing the money supply. 164 00:10:28,720 --> 00:10:33,080 Speaker 1: There's still excess liquidity available to flow into financial assets. 165 00:10:41,840 --> 00:10:44,160 Speaker 1: So that obviously we have the FED meeting coming up 166 00:10:44,600 --> 00:10:47,199 Speaker 1: really soon and a lot of people are expecting them 167 00:10:47,240 --> 00:10:49,880 Speaker 1: to announce that they will start taping. So how do 168 00:10:49,920 --> 00:10:52,480 Speaker 1: you invest around that? And I know a lot of 169 00:10:52,480 --> 00:10:55,880 Speaker 1: investors are pulling forward their expectations for when the FED 170 00:10:56,000 --> 00:11:00,640 Speaker 1: might start hiking interest rates to maybe the earlier parts 171 00:11:00,640 --> 00:11:03,800 Speaker 1: of next year, even I was reading in some Bloomark stories. 172 00:11:03,840 --> 00:11:06,400 Speaker 1: So how do you invest around that? What do you 173 00:11:06,440 --> 00:11:10,200 Speaker 1: tell clients? Well, the first step I think is to 174 00:11:10,280 --> 00:11:17,160 Speaker 1: acknowledge that, uh, timing this thing is extraordinarily difficult. I mean, 175 00:11:17,240 --> 00:11:23,120 Speaker 1: we look at a raft of technical and sentiment and 176 00:11:23,320 --> 00:11:32,400 Speaker 1: monetary data. Uh, but the fact is that in a 177 00:11:32,520 --> 00:11:36,679 Speaker 1: market with this kind of momentum, uh, not a lot 178 00:11:36,679 --> 00:11:40,000 Speaker 1: of that work is all that timely. And of course 179 00:11:41,400 --> 00:11:46,640 Speaker 1: valuations get a bad rap as a poor timing tool, 180 00:11:47,120 --> 00:11:50,280 Speaker 1: and I get that, but they are a very good 181 00:11:50,640 --> 00:11:58,040 Speaker 1: risk management tool. So to start with, we have a 182 00:11:58,080 --> 00:12:03,400 Speaker 1: lower equity allocation in our tactical funds then we would 183 00:12:03,800 --> 00:12:09,000 Speaker 1: if valuations were average or even even on the high 184 00:12:09,160 --> 00:12:12,400 Speaker 1: end of their fair values. Though, I mean, even with 185 00:12:12,480 --> 00:12:17,560 Speaker 1: the dramatically improved fundamental picture, and even with estimates for 186 00:12:17,880 --> 00:12:21,319 Speaker 1: next year which are still trending higher, we are still 187 00:12:21,360 --> 00:12:24,520 Speaker 1: on a lot of measures. UH for the S and 188 00:12:24,559 --> 00:12:29,800 Speaker 1: P five hundred pretty close to numbers that were last 189 00:12:29,840 --> 00:12:36,560 Speaker 1: seen in late early two thousand, near the tech bubble peak. 190 00:12:36,880 --> 00:12:39,839 Speaker 1: What's different and what makes it so much more difficult 191 00:12:40,000 --> 00:12:43,880 Speaker 1: I think for go anywhere managers, so to speak, is 192 00:12:43,920 --> 00:12:46,760 Speaker 1: that the rest of the market is so much more 193 00:12:46,840 --> 00:12:50,600 Speaker 1: expensive than it ever got during the tech bubble. I mean, 194 00:12:50,640 --> 00:12:54,520 Speaker 1: the one thing about the tech bubble was that, uh, 195 00:12:54,640 --> 00:12:58,400 Speaker 1: during the last couple innings of that move into the 196 00:12:58,480 --> 00:13:02,480 Speaker 1: early two thousand, a lot of stuff was left in 197 00:13:02,520 --> 00:13:05,040 Speaker 1: the dust. So you could find a lot of good 198 00:13:05,080 --> 00:13:09,720 Speaker 1: industrial and financial and what they were, classically value sectors 199 00:13:09,760 --> 00:13:12,920 Speaker 1: that were really left in the dust, mid caps, small 200 00:13:13,000 --> 00:13:17,280 Speaker 1: caps that just had very middle of the range pees. 201 00:13:17,440 --> 00:13:21,000 Speaker 1: As long as you were willing to stay away from 202 00:13:21,600 --> 00:13:25,680 Speaker 1: where the action was in those last couple of needs, 203 00:13:25,720 --> 00:13:32,400 Speaker 1: you came through that downturn just fine. Whereas uh, I mean, 204 00:13:32,480 --> 00:13:36,280 Speaker 1: just because of this monetary tsunami, we have everything now 205 00:13:36,679 --> 00:13:42,959 Speaker 1: mid caps, small caps, and really almost across the span 206 00:13:43,040 --> 00:13:47,240 Speaker 1: of sectors, we have valuations well above anything that we 207 00:13:47,320 --> 00:13:49,920 Speaker 1: saw in the late nineties, and at the two thousand 208 00:13:50,200 --> 00:13:56,359 Speaker 1: top so um, there's not not a lot of alternative 209 00:13:56,400 --> 00:13:58,520 Speaker 1: if you'd want to be more defensive. So that's why 210 00:13:58,520 --> 00:14:02,079 Speaker 1: our equity reality asian is more moderate than it otherwise 211 00:14:02,280 --> 00:14:07,720 Speaker 1: would be with this kind of strong uh technical market action. 212 00:14:08,320 --> 00:14:10,240 Speaker 1: So I wanted to ask you, with us coming into 213 00:14:10,320 --> 00:14:13,760 Speaker 1: the year end, how true it is that active managers 214 00:14:13,760 --> 00:14:17,000 Speaker 1: are potentially going to be facing some pressures to chase 215 00:14:17,080 --> 00:14:20,720 Speaker 1: performance given how well the market's done so far this year, 216 00:14:20,760 --> 00:14:25,880 Speaker 1: and what does that mean overall for the market. It's interesting, 217 00:14:25,920 --> 00:14:29,200 Speaker 1: Bill Donna, because I can certainly see there are some 218 00:14:29,280 --> 00:14:35,040 Speaker 1: strange developments uh going on that would suggest some degree 219 00:14:35,040 --> 00:14:38,680 Speaker 1: of narrowing. But when when you see an index as 220 00:14:38,680 --> 00:14:42,760 Speaker 1: broad as the value line breaking out to a new high, 221 00:14:42,800 --> 00:14:46,240 Speaker 1: you know that's that's really a signal that we're not 222 00:14:46,360 --> 00:14:50,840 Speaker 1: quite there yet in terms of the market narrowing. So uh, 223 00:14:50,960 --> 00:14:53,760 Speaker 1: I don't know. I mean, well, what's been interesting here 224 00:14:53,880 --> 00:14:58,160 Speaker 1: this year is it's been sort of a rotational market 225 00:14:58,240 --> 00:15:03,040 Speaker 1: in terms of groups at you know, had a tremendous 226 00:15:03,040 --> 00:15:10,280 Speaker 1: surge beginning around election time, stalling out a year ago, uh, 227 00:15:10,480 --> 00:15:13,960 Speaker 1: stalling out in the spring, and then working sideways for 228 00:15:14,040 --> 00:15:16,080 Speaker 1: several months. So that would be the small caps. The 229 00:15:16,160 --> 00:15:19,480 Speaker 1: Russell two thousand is still below the high that it 230 00:15:19,560 --> 00:15:22,560 Speaker 1: made back in in mid March, which was right around 231 00:15:23,120 --> 00:15:27,080 Speaker 1: when yields unentertain your treasury peaked out. I don't think 232 00:15:27,120 --> 00:15:32,080 Speaker 1: that's probably um, I mean, that's probably not a coincidence. 233 00:15:33,280 --> 00:15:37,560 Speaker 1: H And as I mentioned, you know, the transports have 234 00:15:37,720 --> 00:15:39,880 Speaker 1: been lagging for several months, and all of a sudden, 235 00:15:39,920 --> 00:15:44,480 Speaker 1: just a tremendous surge in in October, so things have 236 00:15:44,600 --> 00:15:48,320 Speaker 1: broadened out. But yeah, I think and again maybe I'm 237 00:15:48,360 --> 00:15:51,960 Speaker 1: biased a little bit by the space in which we compete. UM. 238 00:15:52,600 --> 00:15:55,440 Speaker 1: I certainly think that, you know, the tactical fund space 239 00:15:56,560 --> 00:15:59,400 Speaker 1: that tends to take a more cautious view on things, 240 00:15:59,640 --> 00:16:03,680 Speaker 1: especial stually in expensive markets. I just feel like, you know, 241 00:16:03,720 --> 00:16:07,320 Speaker 1: the bigger fear, UM is the fear of missing out 242 00:16:07,560 --> 00:16:12,880 Speaker 1: radin and the fear of losing significant money. Despite evaluations 243 00:16:12,960 --> 00:16:16,400 Speaker 1: being almost as elevated as they were at the tech 244 00:16:16,480 --> 00:16:22,040 Speaker 1: bubble peak, there's still steems to be more fear over 245 00:16:22,080 --> 00:16:25,480 Speaker 1: missing out than there is over losing serious money. That's 246 00:16:25,520 --> 00:16:45,040 Speaker 1: that's just sort of my sense, and I'm glad you 247 00:16:45,120 --> 00:16:48,120 Speaker 1: brought up the comparisons to the tech bubble, Doug. I 248 00:16:48,160 --> 00:16:50,680 Speaker 1: think the last time we spoke a few years ago, 249 00:16:50,880 --> 00:16:56,640 Speaker 1: pre pandemic obviously, UH we talked about used to do 250 00:16:56,680 --> 00:17:00,440 Speaker 1: a thing basically saying okay, comparing the rally since the 251 00:17:00,480 --> 00:17:04,440 Speaker 1: financial crisis to the dot com rallying saying okay, where 252 00:17:04,480 --> 00:17:10,440 Speaker 1: are we in the dot com bubble calendar? Our our boss, 253 00:17:10,520 --> 00:17:13,280 Speaker 1: Chris neg loved that. That's all you get, you put 254 00:17:13,320 --> 00:17:15,919 Speaker 1: together to sort of track that. So where are we 255 00:17:15,960 --> 00:17:18,800 Speaker 1: now to the the pandemic kind of blow up? That 256 00:17:18,800 --> 00:17:23,240 Speaker 1: that comparison, uh, you know that tool that that when 257 00:17:23,240 --> 00:17:25,680 Speaker 1: you look at the market or is it still valid? 258 00:17:25,720 --> 00:17:28,160 Speaker 1: You know, I remember early on in the conversation, you say, 259 00:17:28,520 --> 00:17:31,199 Speaker 1: you consider this a twelve year bull market, you know, 260 00:17:31,240 --> 00:17:36,080 Speaker 1: the last year's bear market being sort of not counting. Um, 261 00:17:36,440 --> 00:17:38,600 Speaker 1: can you can you still kind of make the the 262 00:17:38,640 --> 00:17:41,760 Speaker 1: parallel to the dot com market given everything that's happened. 263 00:17:43,000 --> 00:17:48,359 Speaker 1: We've introduced some some new valuation techniques since uh I 264 00:17:48,400 --> 00:17:52,639 Speaker 1: first did that work several years ago, basically looking at, okay, 265 00:17:52,640 --> 00:17:56,040 Speaker 1: if this were the late nineties. Where are we based 266 00:17:56,200 --> 00:18:02,119 Speaker 1: on you know, forward pe and normalize pe and price 267 00:18:02,200 --> 00:18:05,879 Speaker 1: to sales and things of that nature. Uh, you know, 268 00:18:05,960 --> 00:18:09,240 Speaker 1: one that we've favored in the last couple of years, 269 00:18:09,240 --> 00:18:15,040 Speaker 1: and it's been helpful with this unusually rapid earnings rebound 270 00:18:15,280 --> 00:18:19,480 Speaker 1: is the concept of looking at price to any trailing 271 00:18:19,600 --> 00:18:23,040 Speaker 1: peak and earnings. And of course we're back at a 272 00:18:23,040 --> 00:18:30,240 Speaker 1: new peak now through second quarter numbers, which is pretty remarkable. Uh. 273 00:18:30,600 --> 00:18:36,920 Speaker 1: But the difference between the current rebound and let's say 274 00:18:36,920 --> 00:18:39,800 Speaker 1: the two thousand peak is that margins are so much higher. 275 00:18:40,840 --> 00:18:44,520 Speaker 1: The SMP five operating margin in the second quarter was 276 00:18:44,560 --> 00:18:49,000 Speaker 1: at twelve all time record, took out the previous record 277 00:18:49,080 --> 00:18:51,280 Speaker 1: of eleven point three, which I believe was in the 278 00:18:51,320 --> 00:18:56,680 Speaker 1: third quarter. If the current forward estimates for the third 279 00:18:56,760 --> 00:18:59,320 Speaker 1: quarter are correct, we're gonna go to twelve and a half. 280 00:19:00,359 --> 00:19:04,600 Speaker 1: I mean, the margins that we were printing back in 281 00:19:04,760 --> 00:19:09,159 Speaker 1: late and early two thousand were between seven and seven 282 00:19:09,160 --> 00:19:12,080 Speaker 1: and a half percent. We are just an entirely different 283 00:19:12,240 --> 00:19:15,959 Speaker 1: zip code when it comes to profitability. Now. The issue 284 00:19:16,080 --> 00:19:20,159 Speaker 1: is that was bound to happen when you dumped five 285 00:19:20,280 --> 00:19:25,000 Speaker 1: trillion dollars of incremental federal spending above and beyond what 286 00:19:25,320 --> 00:19:27,760 Speaker 1: likely would have been spent if there had been no 287 00:19:28,000 --> 00:19:33,760 Speaker 1: pandemic interruption. And of course, UH you monetized about that. 288 00:19:33,840 --> 00:19:38,120 Speaker 1: You monetize four point three out of that five trillion incremental, 289 00:19:38,280 --> 00:19:42,040 Speaker 1: so the operating leverage was just enormous. The issue now 290 00:19:42,240 --> 00:19:46,879 Speaker 1: is you spent that five trillion over a period of 291 00:19:46,920 --> 00:19:52,560 Speaker 1: eighteen months, and now as you're seeing the new uh 292 00:19:52,720 --> 00:19:59,320 Speaker 1: Biden Economic Build, Build Better Plan being whittled down, you're 293 00:19:59,359 --> 00:20:06,240 Speaker 1: talking about eighty two trillion over ten years, so two 294 00:20:06,359 --> 00:20:10,080 Speaker 1: hundred billion dollars a year after you dumped five trillion 295 00:20:10,160 --> 00:20:13,399 Speaker 1: on the thing in eighteen months. So that's why I 296 00:20:13,440 --> 00:20:18,640 Speaker 1: am just you know, when I look at estimates for two, 297 00:20:18,840 --> 00:20:21,439 Speaker 1: it's just very hard for me to join in the 298 00:20:21,480 --> 00:20:24,479 Speaker 1: fray and to throw a number out there, because I 299 00:20:24,560 --> 00:20:28,920 Speaker 1: just I don't have a good idea on what impact 300 00:20:28,960 --> 00:20:32,280 Speaker 1: this fiscal cliff and it will be a cliff on 301 00:20:32,320 --> 00:20:35,280 Speaker 1: a rate of change basis is going to have on 302 00:20:35,520 --> 00:20:42,000 Speaker 1: SMP five journeys. UM just very poor visibility there stand 303 00:20:42,080 --> 00:20:45,920 Speaker 1: clear of the craziest things we saw in markets this week. 304 00:20:46,600 --> 00:20:50,280 Speaker 1: I think that lack of visibility is the theme of 305 00:20:50,920 --> 00:20:52,520 Speaker 1: at least this part of the year, especially with all 306 00:20:52,560 --> 00:20:57,280 Speaker 1: the supply chain issues and everything else. Um and no 307 00:20:57,320 --> 00:21:01,639 Speaker 1: one really knowing how long transitory is is gonna last. 308 00:21:02,240 --> 00:21:05,399 Speaker 1: But the one thing we do have some visibility into 309 00:21:05,600 --> 00:21:08,680 Speaker 1: is the craziest things we've seen in markets this week. Um, 310 00:21:08,920 --> 00:21:10,600 Speaker 1: I'm gonna start with you. What's the craziest thing you 311 00:21:10,640 --> 00:21:12,800 Speaker 1: saw this week? Oh my gosh, you're catching me off guard. 312 00:21:14,000 --> 00:21:15,800 Speaker 1: You had no idea and I had a few more minutes, 313 00:21:15,880 --> 00:21:19,600 Speaker 1: yeah to prepare. Um. Well, as you know, Katie Rifle 314 00:21:19,680 --> 00:21:21,760 Speaker 1: and I have been covering what's been going on with 315 00:21:21,760 --> 00:21:25,360 Speaker 1: the crypto market so extensively, and the launches of the 316 00:21:25,640 --> 00:21:28,280 Speaker 1: future spiitcoin, e TF and and all of that, and 317 00:21:28,320 --> 00:21:31,920 Speaker 1: there's so much happening in the crypto market that's really interesting. 318 00:21:32,440 --> 00:21:34,240 Speaker 1: I think this week she but you knew, I don't 319 00:21:34,240 --> 00:21:38,000 Speaker 1: know if you were keeping track of what was going 320 00:21:38,080 --> 00:21:41,080 Speaker 1: on there, that that was one of the craziest things. However, 321 00:21:41,280 --> 00:21:45,679 Speaker 1: it's been really extensively talked about already. So my craziest 322 00:21:45,720 --> 00:21:50,400 Speaker 1: thing is this Bloomberg story about how Chinese authorities are 323 00:21:50,480 --> 00:21:53,600 Speaker 1: asking the founder of Ever Ever Grand Ever Grande. I'm 324 00:21:53,720 --> 00:21:58,480 Speaker 1: still not sure how to pronounce it. The founder to 325 00:21:58,640 --> 00:22:02,199 Speaker 1: use his personal well to help alleviate some of these uh, 326 00:22:02,359 --> 00:22:05,040 Speaker 1: the some of the crisis that the company is seeing, 327 00:22:06,320 --> 00:22:08,960 Speaker 1: which is just crazy. They're asking him to use his 328 00:22:09,000 --> 00:22:10,840 Speaker 1: own money. To me, it's it's a it's a really 329 00:22:10,880 --> 00:22:15,119 Speaker 1: crazy story. Probably only happened in China. Yeah, I'm not 330 00:22:15,160 --> 00:22:18,399 Speaker 1: sure how that would go over overwhelluh in the US. 331 00:22:18,520 --> 00:22:21,959 Speaker 1: If I don't know, you never know. I don't know, Doug. 332 00:22:22,400 --> 00:22:26,240 Speaker 1: How about you? You You seen anything crazy this week? Uh? 333 00:22:26,480 --> 00:22:32,480 Speaker 1: I did? Bill Donna alluded to it, and uh, you 334 00:22:32,520 --> 00:22:36,720 Speaker 1: know when something I can't even pronounce nor had never 335 00:22:36,840 --> 00:22:42,880 Speaker 1: heard of, uh can take an account a coin base? Uh? 336 00:22:43,160 --> 00:22:51,199 Speaker 1: Billful from an eight thousand dollar total investment up to 337 00:22:51,520 --> 00:22:55,120 Speaker 1: five point six billion? I think is the latest I've read. Yeah. 338 00:22:56,520 --> 00:23:01,520 Speaker 1: Uh and Bill Donna, you had the name, can you? Uh? 339 00:23:01,680 --> 00:23:08,400 Speaker 1: Oh very good? I saw that story. But I mean 340 00:23:08,440 --> 00:23:11,119 Speaker 1: what gets me is I hadn't heard of that until 341 00:23:12,280 --> 00:23:17,280 Speaker 1: last night. Uh. Not big on at least the you know, 342 00:23:17,600 --> 00:23:22,240 Speaker 1: secondary and tertiary cryptos. I mean this is a spoof 343 00:23:22,320 --> 00:23:25,280 Speaker 1: of a spoof, right, it's a spoof on doage coin. 344 00:23:26,680 --> 00:23:31,080 Speaker 1: But just I mean, think about the wealth amassed relative 345 00:23:31,240 --> 00:23:36,560 Speaker 1: to and I was trying to brush up on the 346 00:23:36,640 --> 00:23:41,920 Speaker 1: two thousand eight short of the Housing Market by John Paulson. 347 00:23:42,080 --> 00:23:45,800 Speaker 1: I think that personally netted him four billion. It was 348 00:23:45,840 --> 00:23:49,480 Speaker 1: the greatest trade of all time. Um, you know it was. 349 00:23:50,880 --> 00:23:54,879 Speaker 1: The whole theme was made into a movie, The Big Short. 350 00:23:55,000 --> 00:23:58,480 Speaker 1: But uh, think of all that had to gone go 351 00:23:58,720 --> 00:24:03,160 Speaker 1: right and the intricate structuring of that trade that paid off. 352 00:24:04,119 --> 00:24:06,280 Speaker 1: And now you've got someone that just puts a little 353 00:24:06,280 --> 00:24:08,680 Speaker 1: bit of money out of his or her checking account 354 00:24:09,560 --> 00:24:13,920 Speaker 1: into a spoof and and out does the greatest trade 355 00:24:13,920 --> 00:24:17,280 Speaker 1: of all time in a matter of was it since 356 00:24:17,359 --> 00:24:22,159 Speaker 1: last summer? I can't even remember? But uh, And the 357 00:24:22,240 --> 00:24:28,240 Speaker 1: fact so the weirdest thing is not that itself, but 358 00:24:28,320 --> 00:24:31,320 Speaker 1: the fact that it didn't even qualify as the weirdest 359 00:24:31,359 --> 00:24:35,280 Speaker 1: thing that Bill Donna saw all week. That's weird. That's 360 00:24:35,480 --> 00:24:38,680 Speaker 1: that's her too, immersed. Bill Donna's got her eye on 361 00:24:38,720 --> 00:24:42,000 Speaker 1: a lot of weird things. I saw that story and 362 00:24:42,119 --> 00:24:45,840 Speaker 1: it was fascinating to Mike, do you know what this means? Me? 363 00:24:45,920 --> 00:24:49,240 Speaker 1: And you have to start a derivative of a derivative 364 00:24:49,400 --> 00:24:52,440 Speaker 1: of a derivative. We have to do the third iteration. 365 00:24:53,400 --> 00:24:57,159 Speaker 1: Oh right, like a golden doodle coin. Yeah, a golden 366 00:24:57,200 --> 00:24:59,639 Speaker 1: doodle point would kill it. Is a golden doodle here, 367 00:24:59,840 --> 00:25:02,959 Speaker 1: a golden doodle coin would just kill it all all 368 00:25:03,000 --> 00:25:06,760 Speaker 1: the Golden doodle owners out there, Well, this is a 369 00:25:06,920 --> 00:25:11,399 Speaker 1: rare stars are all lined because because Siba knew if 370 00:25:11,440 --> 00:25:13,840 Speaker 1: I am pronouncing a correct is also by my craziest 371 00:25:13,840 --> 00:25:17,400 Speaker 1: thing of the week. But I'm gonna add the prices 372 00:25:17,480 --> 00:25:20,640 Speaker 1: right element to it. Okay, can either of you tell 373 00:25:20,640 --> 00:25:24,080 Speaker 1: me what the year today percentage gain of this coin 374 00:25:24,200 --> 00:25:30,719 Speaker 1: is seven million or something? Doug, what's your what's your guess? 375 00:25:31,320 --> 00:25:34,240 Speaker 1: I'm gonna say three, three millions something like that per 376 00:25:34,240 --> 00:25:38,080 Speaker 1: cent So I had to. I did this math like 377 00:25:38,119 --> 00:25:40,920 Speaker 1: three times because it's it's not the easiest math to do. 378 00:25:41,600 --> 00:25:44,399 Speaker 1: The start of the year might do this coin still 379 00:25:44,480 --> 00:25:47,760 Speaker 1: is way in the fractions of a penny per coin. 380 00:25:48,640 --> 00:25:53,639 Speaker 1: Start of the year it was dollar sign zero decimal 381 00:25:54,560 --> 00:25:59,480 Speaker 1: ten zeros. See the last time I checked its dollar 382 00:25:59,640 --> 00:26:04,040 Speaker 1: sign zero decimal four zero sixty. That gets you a 383 00:26:04,200 --> 00:26:08,679 Speaker 1: ninety one million percent year to date gain and achieve it. 384 00:26:08,840 --> 00:26:10,639 Speaker 1: You know, does it make you think like, what are 385 00:26:10,680 --> 00:26:13,959 Speaker 1: we doing with our lives? It does? And then just 386 00:26:14,920 --> 00:26:18,040 Speaker 1: you know, I'm sort of a market historian, just all 387 00:26:18,119 --> 00:26:22,080 Speaker 1: the good stories you would hear about, like anecdotal sentiment 388 00:26:22,119 --> 00:26:27,399 Speaker 1: tip offs. I mean one being Joe Kennedy supposedly sold 389 00:26:27,440 --> 00:26:31,440 Speaker 1: his stocks in ninete because the shoe sharing boy gave 390 00:26:31,480 --> 00:26:34,600 Speaker 1: him a stock tips. I mean, that is so weak 391 00:26:34,720 --> 00:26:38,400 Speaker 1: by today's standards. I mean, we were, we were far 392 00:26:38,480 --> 00:26:43,600 Speaker 1: beyond that a year ago, and here we are still 393 00:26:43,760 --> 00:26:48,040 Speaker 1: powering higher. And that's uh, you know, that's what I 394 00:26:48,080 --> 00:26:50,560 Speaker 1: talked about. Even you know, some of these sentiment tools, 395 00:26:50,680 --> 00:26:53,600 Speaker 1: I mean a lot of our sentiment work has been 396 00:26:54,640 --> 00:26:58,720 Speaker 1: through the roof now for months on end. But you know, 397 00:26:58,760 --> 00:27:02,639 Speaker 1: the Hueshine Boy tips haven't been helpful in terms of 398 00:27:02,680 --> 00:27:06,200 Speaker 1: negotiating an exit to this market. So sometimes I joke, 399 00:27:06,280 --> 00:27:11,280 Speaker 1: you know, evaluation has deservedly a bad rap for how 400 00:27:11,320 --> 00:27:13,840 Speaker 1: inept it is at helping you time the market. But 401 00:27:13,880 --> 00:27:19,359 Speaker 1: I think sentiment gives gets an undeservedly good rap because 402 00:27:19,400 --> 00:27:22,840 Speaker 1: it's also not that helpful, uh, when you're in a 403 00:27:23,000 --> 00:27:25,720 Speaker 1: manic environment like this. I mean, quite frankly, most of 404 00:27:25,720 --> 00:27:30,560 Speaker 1: our sentiment work, our sentiment composite registered its froth Eyist 405 00:27:30,880 --> 00:27:35,840 Speaker 1: readings back in mid February, and here we are probably 406 00:27:35,880 --> 00:27:39,400 Speaker 1: sixteen seventeen percent higher than we were in mid February, 407 00:27:39,480 --> 00:27:43,920 Speaker 1: so even the sentiment stuff, it's not all that helpful. Oh, 408 00:27:44,040 --> 00:27:45,680 Speaker 1: I think that's all the time we have for this week. 409 00:27:45,800 --> 00:27:48,720 Speaker 1: Really appreciate you joining the show, and uh hope, I 410 00:27:48,720 --> 00:27:50,639 Speaker 1: hope we can do it again some day, Well to 411 00:27:50,680 --> 00:28:00,880 Speaker 1: do it again What Goes Up. We'll be back next 412 00:28:00,920 --> 00:28:02,560 Speaker 1: week and so then you can find us on the 413 00:28:02,560 --> 00:28:06,720 Speaker 1: Bloomberg Terminal website and app or wherever you get your podcasts. 414 00:28:07,200 --> 00:28:08,800 Speaker 1: We love it if you took the time to rate 415 00:28:08,840 --> 00:28:11,640 Speaker 1: and review the show on Apple podcast so more listeners 416 00:28:11,640 --> 00:28:13,960 Speaker 1: can find us. And you can find us on Twitter 417 00:28:14,359 --> 00:28:18,920 Speaker 1: follow me at Reaganonymous. Well, Donna Hirich is at Vildonta Hirich. 418 00:28:19,240 --> 00:28:22,960 Speaker 1: You can also follow Bloomberg Podcasts at podcasts and thank 419 00:28:23,000 --> 00:28:25,280 Speaker 1: you to Charlie Paletta, Bloomberg Radio, and the voice of 420 00:28:25,280 --> 00:28:27,919 Speaker 1: the New York City Subway System. What Goes Up is 421 00:28:27,920 --> 00:28:31,280 Speaker 1: produced by Tofur Foreheads. 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